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T-Bill Price Formula:
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The T-Bill price calculation determines the purchase price of a Treasury bill based on its face value, interest rate, and time to maturity. Treasury bills are short-term government securities that are sold at a discount and mature at face value.
The calculator uses the T-Bill price formula:
Where:
Explanation: The formula calculates the present value of the T-Bill using the bank discount method with a 360-day year convention.
Details: Accurate T-Bill price calculation is essential for investors to determine the appropriate purchase price, calculate yields, and make informed investment decisions in government securities.
Tips: Enter the face value in currency units, annual interest rate as a percentage, and time to maturity in days (1-360). All values must be positive and valid.
Q1: Why use a 360-day year instead of 365?
A: The bank discount method traditionally uses a 360-day year for simplicity in financial calculations, particularly for short-term instruments like T-Bills.
Q2: What is the typical face value of T-Bills?
A: T-Bills are typically issued with face values of $1,000, $5,000, $10,000, $25,000, $50,000, $100,000, and $1 million.
Q3: How does the interest rate affect the price?
A: Higher interest rates result in lower T-Bill prices, while lower rates result in higher prices, following the inverse relationship between interest rates and bond prices.
Q4: Are T-Bills risk-free investments?
A: T-Bills are considered among the safest investments as they are backed by the full faith and credit of the U.S. government, though they are subject to interest rate risk.
Q5: How are T-Bill yields different from prices?
A: The yield represents the return on investment, calculated as (Face Value - Price)/Price × (360/days), while the price is the actual purchase amount.